ISA TODAY news coverage

Automation World: Global Shifts in Automation

1 - Automation business overview

• Over $1 billon - 13 companies
  • Siemens, Schneider, GE, ABB, Honeywell, Emerson, Rockwell, Tyco, Yokogawa, Omron, Eaton, Danaher, Invensys
  • Will consolidate to 5 this decade
• $100m - $1 billion � only 3-5
  • Divisions of conglomerates
  • Europeans - German �mittelstand�
  • Exception - Nation Instruments
• 90% � around $1-10 million

2 - Automation advantages lost

• Core products
  • Features-Advantages-Benefits easily duplicated
  • Quality manufacture of commodity hardware
  • Software easily copied � functional equivalents.
• Automation products are commodities
  • Available from several sources with marginally different features and benefits
  • Low margins � stiff competitions, drastic price reductions - general business decline
  • Recession makes the competition more brutal

3 - Automation Majors strategy

• Shift to solutions/integration
  • Low margins
  • Services intensive
  • Compete with SI customers
• Going offshore to reduce costs
  • Losing technology advantage
  • De-motivating employees
• Consolidation � M&A
  • Pig + pig = more pigs

4 - Technology Shift

• Old technology - commodities
  • PLC, DCS, SCADA
  • Software � HMI, MES
  • Sensors, valves, equipment
• New technology � inflection points
  • Nanotech, MEMS
  • Wireless sensors � pervasive Internet
  • Complex adaptive systems
• Old dinosaurs will die, new leaders will emerge

5 - Productivity is the key

• Productivity is now a global race between regions and nations.
• Those who can make things cheaper, faster, better � win!
• US and Europe losing technology advantage
• Factories & process plants moving
  • Closer to customers
  • Closer to raw materials

6 - Knowledge work - anywhere

• Internet makes physical location irrelevant
  • Low-cost telephone Help lines
  • Availability of trained people
• Knowledge is power
  • US is losing the big advantage
  • Outsourcing moving up the food-chain

7 - US Offshore Outsourcing

• It's NOT cost
  • Better, cheaper, faster
  • Local investment in automation & equipment
  • Availability of trained labor
• Job losses�especially in manufacturing
  • US does not like manufacturing � puts roadblocks
  • Little or no investment in equipment & automation
  • Offshore locations provide BIG tax breaks and assistance

8 - China � Manufacturing

• Manufacturing prowess
  • Good, repetitive quality.
  • Worldwide market-share - 50% of cameras, 30% of air conditioners and televisions, 25% of washing machines, 20% of refrigerators
  • One private Chinese company - 40% of all microwave ovens sold in Europe
  • City of Wenzhou, Eastern China - 70% of the world's metal cigarette lighters
• Wal-mart � Buys $ 12 billion from China

9 - Chinacosm � Hitech looms

• 700,000 engineers a year, 37% of all college graduates
• University system - growing in size and quality
• Engineer pay ranges - $4,000 to $8,000/yr.
• New CISCO competitor
• Biotech advances � genome sequencing
• Space technology advances

10 - India in a new century

• World's most populous country (mid-century)
  • Advantage - English-speaking
  • China's pop. growth is under control; India's is not
  • Already the world's largest democracy
• US Software � $6-8 billion, 60% growth
  • Infosys - 2003 revenue $750m, profit 25%, growth 38%, Nasdaq market-cap $11.5 billion
  • Wipro - 2003 revenue $ 900m, profit 18%, growth 29%, NY stock exchange market-cap $9 billion

11 - Global HiTech

• Other regions/countries are competing strongly
  • Central & Eastern Europe
  • Ireland
  • Russia
  • Brazil
  • Mexico
• US steadily losing advantage in many key technologies

12 - World competition brews

• Third-world
  • Hungry
  • Innovative
  • Competitive
• Fundamental problem - you cannot simulate hunger
• Big offshore tax-holidays to lure shifts

13 - Jobless recovery

• Offshore outsourcing � small impact
  • Only 300,000 (15%) of jobs lost
• Unemployment caused by increased productivity
  • Automation has reduced headcount
  • Computers & Internet

14 - US Govt. involvement

• Govt. assistance programs inhibit new hiring
  • Insurance and other overheads
  • Equal opportunity protection
  • OSHA & environmental restrictions
• Maintaining American jobs
  • Tax breaks � minimal advantage
  • Not a level playing field � trade subsidies
• US is preoccupied with terrorism
  • Cost exceeds $1 trillion

15 - Outsourcing Solutions

• Use the best resources of the global village to build business
  • Focus on building the right technology & solutions � the end result
  • Outsource "picks, shovels, rakes & hoes" � build the railroad
• Unions
  • Too restrictive and protective
  • Stop subsidies and adversarial posture
  • Compete

16 - Keys for success

• Proprietary products
  • Customer productivity important
  • Continuous upgrade to maintain leadership
  • Outsourcing is irrelevant � productivity is the key
• High-value-added
  • Proprietary knowledge
  • Tailored to specific customer needs
• Go global � think local
  • Special needs, custom requirements must be handled locally
  • Partnership and proximity

17 - Outsourcing Panel session

Panelists:
• Jim Pinto � Chair
• Dick Morley � Industry guru
• Walt Boyes � Editor CONTROL magazine
• Jim Teegarden � Valpers Partners

Read ISA TODAY news coverage

18 - Futures prognostications

• The "good old days" will not return
  • We have NOT "found the bottom"
• Future is already here � it's exciting
  • Not just a reflection of the Past
• Change is good � ride the waves
  • Look for inflection points

19 - Capitalism - short-term goals

• The Achilles heel of Capitalism
  • Selling the knowledge advantage with a short-term profit motive
• Old globalization was "cheap labor"
  • New globalization is "knowledge"
• Up into the 1990s, few perceived how globalization and free trade trends would cause massive disruptions in where and how the world�s goods are produced

20 - China � new world power

• Capacity to launch nuclear weapons on intercontinental missiles
• Space technology
  • Orbital communications, GPS satellites
  • Military surveillance
  • Seriously affect commercial and security aspects
• NASA - high costs price US out of outer space
• Limited US ability to control militaristic advances
• Long term (Political) problem with China

21 - McWorld vs Tribalism

• Growth of multi-nationals
  • Pure profit motive, sell consumerism
  • No cultural context
  • Integration and uniformity
  • No allegiance to any specific country
  • Too much political power
• Tribalism
  • Culture is pitted against culture, people against people, tribe against tribe
  • Sub national and ethnic links
  • Terrorism � high cost of control

22 - Future global challenges

• Global energy problems
  • Energy independence
  • Nuclear energy
• Environmental concerns
  • Water
  • Waste
  • Humanitarian dilemmas
• Religious Extremism
  • Tolerance & understanding to counter terrorism